Super changes are good news

HERE we go again. Once more the government is fiddling with the rules for superannuation. But this time around the changes are gradual, without too much need for a drastic overall of personal plans.

At I write, the government is yet to announce its annual federal budget, which could see further changes to super. But as things currently stand, it seems the federal government has developed a formula for super that I suspect will take it through to the election later this year.

The policy involves an increase in your employer's compulsory super contributions, up from their present level of 9 per cent of your basic wage or salary, to 12 per cent over the next ten years.

Instead of tightening the contribution limit for over-50s from 2012, older workers can now keep adding to their nest egg - contributing up to $50,000 annually out of pre-tax income, until their nest egg is worth around $500,000.

This latter change in particular will see plenty of older workers breathe a sigh of relief. It means they can continue to add substantial amounts to super at a stage in life when we tend to be best placed to tuck funds away for retirement.

There is no doubt that the more we can save in super, the better off we'll be in retirement. And as our population continues to age, that can only be a good thing. Moreover, research suggests that plenty of Australians support the idea of additional super contributions.

A recent survey commissioned by the Australian Institute of Superannuation Trustees found nearly two thirds of people would like to see compulsory super contributions rise to 12 per cent. The surprising part is that a significant percentage said they would prefer the boss making extra super contributions on their behalf, rather than receiving a direct pay rise.

I reckon the new increase in compulsory super contributions is a good idea, but bear in mind it will occur over an extended ten year period. So the full benefit will really only flow to younger workers.

There are good reasons for the long lead time. Small businesses in particular would argue that the additional contributions are like an extra tax imposed on businesses.

But rather than simply relying on a slow but steady boost to your super from the bosses contributions, why not add to your super today?

With less than two months remaining before the end of the financial year, there's time to add to your super to receive a government co-contribution if you earn less than around $62,000 annually.

Or add a bit extra to your spouse's fund, and if they're a low income earner, you could claim a tax offset worth up to $540.

Or talk to your employer about making additional contributions through salary sacrifice. It means having part of your pre-tax salary paid into super instead of receiving the money as cash in hand. Employers aren't obliged to go along with this, but if they do, it's an option that can provide a tax friendly and simple way to build your retirement savings.

Paul Clitheroe is a founding director of financial planning firm ipac, Chairman of the Australian Government Financial Literacy Board and chief commentator for Money Magazine.